Kakao Entertainment has been found to engage in deceptive advertising practices over the span of 8 years. They utilized social media accounts with substantial followings to promote their music and albums in a misleading manner.
The Fair Trade Commission (FTC) issued a corrective order on March 24 against Kakao Entertainment for their deceptive advertising strategies and imposed a fine of 390 million KRW (around 266,000 USD).
As a dominant player in the local music and album distribution sector, Kakao Entertainment commands a 43% market share as of April 2023. The company's revenue increases in tandem with the rising consumption of the music and albums it distributes.
To boost sales, Kakao Entertainment implemented viral marketing techniques. The FTC grouped Kakao Entertainment's tactics into three main categories:
Initially, Kakao Entertainment either bought or created well-liked social media platforms without disclosing their affiliation. They leveraged 15 channels for misleading advertising, such as 'Idol Research Lab' on Facebook and 'Do You Listen to Music?' across Facebook, YouTube, Instagram, and TikTok.
Secondly, Kakao Entertainment masqueraded as regular internet users to publish promotional content on significant online communities without revealing their true identity, including platforms like TheQoo, PPOMPPU, MLB Park, Instiz, and Dmitory.
Thirdly, Kakao Entertainment contracted advertising agencies to advertise their music and albums on social media while obscuring their vested interest, making it difficult for consumers to recognize the content as advertising. This involved collaborating with 35 agencies and funneling around 860 million KRW (approximately 586,000 USD) into 427 posts through platforms like TheFan and Banana Marketing.
According to the findings of the FTC, Kakao Entertainment's covered-up activities led consumers to mistake the promotions as genuine recommendations rather than paid advertisements. The social media accounts utilized by Kakao Entertainment collectively amassed 4.11 million followers, while the online communities had a membership base of 1.5 million.
The FTC criticized Kakao Entertainment for persisting in violating regulations even after identifying the issues internally. Subsequently, the FTC imposed a fine, citing the gravity of the transgressions.